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Kinross Gold Corporation (KGC) Part 2

October 31, 2011 | About:
Continued from Part 1



Note: We had tweaked EPS and BVPS according to Morningstar’s data as at December 2010 and arrived at fair value of $34.69 with margin of safety of 58%.


All price multiples of KGC trade below industry average, and it provides ample headroom for multiple expansion.

Financial analysis



It is evident that ROE had increased over the years from negative 17% (fiscal 2008) to positive 9.32% (TTM), attributed by the following:

  • increasing net margin or profitability

  • increasing efficiency from higher asset turnover

  • despite lower financial leverage (A/E) due to increase in the denominator E, as the company’s growth has been largely equity financed amidst rising gold prices and asset valuations.

In sum, despite high capex outlay to fuel KGC’s growth, either through acquisition or organically, KGC is an enticing gold miner’s play to leverage on an impending uptick in gold prices. KGC's earnings are sensitive to gold prices; a $100 rise in gold prices from 2010's average of $1,191/oz. could result in a $228 million rise in EBITDA. Another monetary expansion by ECB or the Fed will be the potential catalyst for KGC.

Disclosure: No positions

Caveat: Please do your due diligence before risking any trades.

About the author:

Coeus Capital
CAIA and CHP charterholder. Long-biased US equities, with strong focus on small to mid-cap stocks (NYSE, NASDAQ, AMEX, OTC & ADR) utilizing fundamental and technical analysis. Agnostic investor, trader, writer and perpetual student of the market. Contact Coeus at coeuscapitalcall@gmail.com

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